Swiss Regulatory Flexibility and UBS’s Capital Relief Pathways: Strategic Risk Mitigation in a Globalized Banking Era

The Swiss regulatory landscape in 2025 has become a focal point for UBS, as proposed capital rules threaten to reshape its financial architecture and competitive positioning. The Swiss government’s plan to fully deduct investments in foreign subsidiaries, deferred tax assets on temporary differences (TD DTAs), and capitalized software from UBS’s Common Equity Tier 1 (CET1) capital could force the bank to hold an additional USD 24 billion in CET1 capital by 2027, on top of USD 18 billion already required from the Credit Suisse acquisition [1]. This regulatory shift, described as “extreme” by UBS, risks distorting the bank’s capital strength metrics and constraining shareholder returns, including dividends and buybacks [2].

Strategic Mitigation: Navigating Regulatory Constraints

UBS’s response to these pressures reflects a blend of advocacy and operational adaptability. The bank has committed to engaging in Swiss regulatory consultations to advocate for alignment with international standards, emphasizing that the proposed rules lack proportionality [1]. Simultaneously, UBS is recalibrating its capital allocation strategies. For instance, it has increased allocations to discretionary macro and commodities trading strategies in Q2 2025, leveraging geopolitical uncertainties and trade policy shifts to optimize returns [3]. This approach mirrors global best practices, where firms like Citigroup and Deutsche Bank balance regulatory compliance with dynamic asset allocation to mitigate risk [4].

The bank’s emphasis on alternative assets, such as hedge funds and gold, further underscores its strategic pivot. UBS highlights gold’s role as a “strategic asset” for central banks amid rising geopolitical tensions, while hedge funds offer diversification against policy shocks [5]. These moves align with industry trends toward non-traditional instruments to hedge against regulatory and macroeconomic volatility [6].

Competitive Positioning: A Global Perspective

UBS’s challenges, however, highlight a broader tension between domestic regulatory rigor and global competitiveness. The proposed Swiss rules could reduce UBS’s CET1 ratio to around 17%, underrepresenting its true capital strength compared to peers like Citigroup, which faces less stringent domestic requirements [1]. This regulatory asymmetry risks eroding UBS’s market share in wealth management and investment banking, where capital efficiency is critical.

To counter this, UBS is leveraging its Swiss banking heritage and global wealth management expertise. Its 15% return-on-CET1 target for 2026, coupled with a 10% dividend increase and USD 3 billion in buybacks, signals confidence in its ability to navigate the phase-in period (2027–2035) for foreign subsidiary deductions [1]. This strategy mirrors the ABA’s advocacy for capital requirements tailored to risk profiles, ensuring banks are not overcapitalized for low-risk activities [7].

The Path Forward: Regulatory Flexibility and Innovation

The Swiss Parliament’s delay in scrutinizing the proposed rules offers UBS a window to influence outcomes. By advocating for a cost-effective framework, the bank aims to avoid the “regulatory drag” that has contributed to its underperformance against global peers [3]. Meanwhile, U.S. regulatory trends—such as the proposed alignment of leverage ratios with risk-based capital—suggest a global shift toward proportionality, which UBS could leverage to strengthen its case for Swiss reform [8].

In the long term, UBS’s success will hinge on its ability to balance compliance with innovation. By integrating alternative assets, optimizing borrowing strategies in a low-rate environment, and engaging proactively with regulators, the bank can mitigate the impact of Swiss rules while maintaining its edge in global wealth management.

Source:
[1] UBS statement on regulatory proposals made by the Swiss [https://www.ubs.com/global/en/media/display-page-ndp/en-20250606-mrb.html]
[2] New Swiss rules may force UBS to review global franchise, curb buybacks [https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/6/new-swiss-rules-may-force-ubs-to-review-global-franchise-curb-buybacks-90285705]
[3] Strategy Outlook | UBS Global [https://www.ubs.com/global/en/assetmanagement/insights/asset-class-perspectives/hedge-funds/articles/q3-2025-uga-hf-strategy-outlook.html]
[4] UBS Q1 profit tops forecasts but Trump tariff shock clouds ..., [https://www.reuters.com/sustainability/boards-policy-regulation/ubs-1q-profit-tops-expectations-tariff-driven-volatility-markets-2025-04-30/]
[5] UBS Reserve Management Seminar 2025 [https://www.ubs.com/ie/en/assetmanagement/insights/sovereign-investors/articles/reserve-management-seminar.html]
[6] 2025 Capital Markets Regulatory Outlook, [https://www.deloitte.com/us/en/services/consulting/articles/securities-regulatory-outlook.html]
[7] Capital Requirements, [https://www.aba.com/advocacy/our-issues/capital-requirements]
[8] Rethinking Bank Leverage and Capital Requirements in ..., [https://www.dwt.com/blogs/financial-services-law-advisor/2025/07/rethinking-bank-leverage-capital-requirements-eslr]